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What’s So Bad About Foreclosure?
By JLP | March 9, 2009
No, I would not want to have my house foreclosed upon. But, I still think the process makes sense. From today’s Wall Street Journal (no link. It was just a short piece on A4):
Hundreds of houses went to the highest bidder at an auction of foreclosed homes Sunday at the Jacob K. Javits Convention Center.
About 1,000 people were in attendance, and more bidders particpated online.
Sunday’s sale, the second New York City sale featured more than 350 condos, single family houses and duplexes…
At the end of the article it stated that one lady bought a house for $340,000. She had been looking at it since October of last year.
I know foreclosure is tough on those who are losing their homes but to those who can ACTUALLY AFFORD A HOUSE, it’s a good thing!
Housing prices, just like everything else, are based on supply and demand. If prices come down enough, there will be buyers. The sooner we get buyers for these homes, the better. Foreclosure, rather than trying to help people afford the unaffordable, is the ONLY way to go.
Topics: Credit Crisis, Housing Market | 13 Comments »
March 9th, 2009 at 10:40 am
There was a line in the story as well about the protestors outside the auction condeming the foreclosure process. Brilliant! Let’s ban foreclosures and see what that does to the housing market………
March 9th, 2009 at 11:09 am
The high rate of foreclosure is a sign of the housing market bust. So people automatically just jump over the logical ravine and say “Foreclosures are bad!” No, bubbles are bad…
March 9th, 2009 at 11:36 am
The thing I don’t like is that the person who was foreclosed on cannot bid on their own house in auction because of their newly created bad credit. If they originally bought their house at $500k and it goes for $340k at auction, shouldn’t the family have the option to reacquire the house at $340k with the lower monthly payments.
The foreclosure process could work better if it could factor in what the family can afford and what the new appraisal on the house would be in that area. What’s the difference, the banks going to lose that money either way, whether a low bid in auction or lowering the families loan balance to the new appraised value.
March 9th, 2009 at 11:55 am
Ken: Valid point, but we live in a world of credit scores. Individuals and businesses have to live and die by them (if needed they are debtors). Your point makes some political sense, though. Maybe people would stop fighting the market if the foreclosed upon “homeowner” were allowed to bid at the correct market price.
March 9th, 2009 at 3:28 pm
This is why I think a “foreclosure-in-place” strategy may be a good temporary measure. Have a holding entity modeled after the old RTC foreclose on the property, let the old owner rent the house back from them, and sell it back to them after a sort of “probationary” period of several at a market price using a market-rate mortgage. The rent would be the magic 31% rate or market rate, whichever is lower.
If they can’t keep up with the rent, they are evicted and the house gets sold.
You want to keep the market moving and not destroy the long-term mortgage market with “cramdowns” and such things, but “mass foreclosure” – and more importantly, mass evictions and empty houses – involves lots of fallout to the neighborhood that is worth avoiding.
March 9th, 2009 at 4:32 pm
@ Ken, maybe I’m missing something here, but even if they could reacquire their home, they’re still on the hook w/the bank for the difference between the o/s loan balance and the “foreclosure” price. Unless the bank takes the hit, they’re still at the same debt point. And why should the bank have to take a hit and allow the same family to bid? For once, something is “fair” just the way it is.
March 9th, 2009 at 6:13 pm
I think the foreclosure auctions are a bad sign for our national and global economy. One foreclosure doesn’t seem bad; but auctioning dozens, if not hundreds, of homes in a single day at fire-sale prices is bad. It’s bad for the reason that deflation is bad. Sure, you can buy something for less than in the past; but people are reluctant to buy a home because they are uncertain of their own economic future and whether home prices will continue to fall. It leads to a vicious circle that is difficult to escape.
I have never owned a home, and would love to use my six-figure savings as a down-payment on a home (I live in the San Francisco Bay Area, 20% is almost always more than $100k). But I’m unsure of whether I’ll have my current job 6 months from now, so I’m sticking with an FDIC-insured MMA for the time being. It wouldn’t serve me well to buy a foreclosure now only so that I could end up being foreclosed upon in one or two years.
March 9th, 2009 at 9:57 pm
This whole foreclosure mess reminds me of the movie, “The House of Sand and Fog”.
March 10th, 2009 at 12:17 am
Foreclosure may be the only way out for many people, especially for adjustable rate mortgages that are beyond what many people can afford. But, I have to believe that there must be another way than letting many of these homes go into foreclosure. In some situations, I believe it may be in the bank’s best interest to consider refinancing these loans, rather than let them go into foreclosure, which could mean months before the banks get any form of a payment as the foreclosure process completes.
Don’t get me wrong, many of these buyers got in way over their heads and should go into the foreclosure process. But, at some stage we will need to slow the foreclosure rate. Home prices will not begin to stabilize until the foreclosure rate slows.
March 10th, 2009 at 3:48 am
As the old adage goes..silver lining in black clouds.. there is an opportunity in every lost situation..so its true that there exists quite a good opportunity forthose who can afford houses in these times when the prices are tumbling down…
March 10th, 2009 at 7:35 am
Didn’t Donald Trump say something to the effect of, “If you owe the bank $100,000 they own you, if you owe the bank $100,000,000 you own the bank.”
You would think collectively the underwater homebuyers in this country “own the bank”, it would seem in the banks best interest to work out the loans in any way they can to avoid foreclosure. An empty, depreciating, non-cash-flowing house on the books is really not good for the banks..
I am thinking it is just as much the pissed off underwater homebuyer who THOUGHT their property was worth 800K walking away as it is the bank foreclosing.. I could be wrong, but why pay even a re-worked loan if your house is 100k under water?
March 10th, 2009 at 8:10 am
The process is a good one for our economy.
However, the reason I think many people say foreclosures are bad is because, on a macro level, it depresses the economy. This is bad – in the short-term but in the long-run, the process is what keeps our system alive.
April 7th, 2009 at 4:52 pm
you are all morons, the people will rise up against you as soon as this gets bad enough, go to your local wal-mart, why do you think they are out of ammunition? The revolution is comming…Idiots like you need to prepare